Credit reporting update will distinguish between short sales and foreclosures

A change in how distressed home sales are reported to federal mortgage backer Fannie Mae should make it easier for people who did a short sale to buy again faster.

Foreclosures are more financially damaging to a borrower’s credit than a short sale, but Fannie Mae didn’t have an automated way to differentiate between the two. This could be an especially important change in Florida where short sales made up 28 percent of all sales in June, according to RealtyTrac.

Typically, people who went through a foreclosure can’t buy again for seven years, while it’s just three years with a short sale.

Sen. Bill Nelson, D-Fla., held a congressional hearing on the issue in May, urging the lending industry to update computer software used to report the distressed sales.

“Regardless of the cause, I’m glad Fannie Mae is fixing the problem,” Nelson said. “You can’t punish homeowners who went upside down solely because of the economic downturn and loss of value in their home.”